Industry views: Will The Housing Market Thrive Without Stamp Duty Extension?

Residential property prices slowed last month as purchasers anticipated the end of the government’s stamp duty holiday at the end of March, the latest data from Nationwide shows.

On an annual basis, property price growth slowed modestly to 6.4% in January, from 7.3% in December.

On a monthly basis, prices dropped by 0.3% – the first monthly decline since June. The average price in January stood at £229,748, down from £230,920 a month earlier.

Nationwide’s chief economist, Robert Gardner, attributed the slowdown largely to a tapering of demand ahead of the end of the stamp duty holiday, with many buyers having brought forward their property purchases to take advantage of the tax saving. He also noted that activity would be expected to weaken before the deadline itself, given that the purchase process typically takes several months.

The slight fall in property prices last month was described by Jonathan Hopper, CEO of Garrington Property Finders, as a pause in the market rather than a significant downturn. He believes that the rapid pace of price growth seen during the latter half of 2020 was unsustainable and that market activity had also slowed due to current lockdown restrictions.

However, Hopper maintained that buyer demand would continue to play a decisive role in the market, regardless of the stamp duty holiday. He suggested that the market would need several months to rebalance, with the supply of homes coming onto the market having been interrupted by lockdown restrictions. This reduced supply could support prices in the short term, while price growth may ease as more homes become available.

Lucy Pendleton of James Pendleton estate agents also played down the monthly decline, pointing out that the fact many buyers agreeing purchases would now be unlikely to benefit from stamp duty relief had done little to reduce market activity. This suggests wider factors have continued to support demand.

While many estate agents called for an extension to the stamp duty holiday, John Phillips, national operations director at Just Mortgages and Spicerhaart, warned that extending the deadline could simply create similar pressures further down the line. Although the tax break had encouraged some buyers to act sooner, he believed it was not the sole driver of the market and that demand for home moves would continue regardless.

David Westgate, group chief executive at Andrews Property Group, also viewed the January slowdown as understandable rather than a major cause for concern. While the end of the stamp duty holiday and the threat of rising unemployment could put downward pressure on prices, he did not expect activity levels to fall sharply. The continued vaccine rollout and a gradual return to normal life were also expected to support property transactions during 2021.

However, Marc von Grundherr, director of Benham and Reeves, predicted a period of greater instability as the end of the stamp duty holiday could result in more transactions falling through. While many buyers had already benefited from the tax saving, a significant number were still waiting to complete, and missing the deadline could create further disruption. He suggested that this could lead to a more notable short-term correction in house prices, although the market’s resilience could help any decline remain relatively short-lived.

Group CEO of Enness Global Mortgages, Islay Robinson, pointed out that a notable tightening across the lending space had made it much harder for the average homebuyer to secure a mortgage, despite interest rates remaining extremely low.

Robinson suggested that without the additional motivation of the stamp duty holiday, reduced mortgage availability could cause transaction volumes to decline during the second and third quarters of the year, cooling the rate of house price growth in the process.

However, he also noted that the market remained attractive for buyers with stronger financial foundations and that robust activity at the top end of the market could continue to support overall momentum.

Overall, January remained an impressive month for UK house prices, particularly when comparing the 6.4% annual rate of growth with the 1.9% recorded at the same point the previous year.

Sam Mitchell, CEO of online estate agent Strike, said the strength of future demand would depend on wider economic conditions, including rising unemployment, Brexit and uncertainty around stamp duty. However, ongoing low interest rates, higher loan-to-value lending, growing confidence around the vaccine rollout and changing buyer priorities were all expected to continue supporting demand.

While uncertainty remained around the outlook, the UK property market had faced significant challenges before and continued government support for homeownership was expected to play an important role in maintaining market stability.